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Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
MIT CISR gratefully acknowledges the support & contributions of its Research Patrons and Sponsors. Research Patrons
Research Sponsors
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 2009 MIT MIT Sloan Sloan CISR, CISR, 3-Apr-09 3-Apr-09
*IT Savvy = enterprises ability to gain above industry average returns from IT by better management.
Industry Average
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
IT Savvy
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Peter Weill and Stephanie L. Woerner of 2006 MIT SeeIT/CISR survey of 329 matched with publicly available firm performance data. NSF grant number IIS0085725.
IT Programs
Groupings of projects linked to business goals Sustaining Ongoing spending to keep current systems running
New
IT Projects
IT Functions
Ongoing activities (e.g., operations, maintenance, planning, development, sourcing, security, and test)
who spend more of their total IT spend on new initiatives (dashed box) had statistically significantly higher industry adjusted growth and margins MIT CISR study, July 2008 (95 firms). (CISR) Source: MIT CISR study of 1508 firms in late 2007 (Weill & Woerner).
1Firms
Center Center for for Information Information Systems Systems Research Research (CISR)
2009 MIT Sloan CISR - Weill
Strategic IT: supports entry into a new market, development of new products
or capabilities, and innovative implementations of IT. Example: ATMs
Source: P. Weill & S. Aral,Generating Premium Returns on Your IT Investments, MIT Sloan Management Review, Vol. 47, No.2, Winter 2006.
Increased control Better information Better integration Improved quality Faster cycle time
13% 13%
27%
Cut costs Increase throughput
INFORMATIONA STRATEGIC L TRANSACTIONAL INFRASTRUCTURE Business integration Business flexibility 47% Reduced marginal cost of BUs IT Reduced IT costs Standardization
( ) = public sector
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Source: Framework from P. Weill & M. Broadbent, Leveraging the New Infrastructure: How market leaders capitalize on IT, Harvard Business School Press, 1998. Data: Percentages are 2007 total $IT spending (operations+ depreciation) from 1113 firms, from MIT CISR Survey.
Business Unit 2
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Updated from : P. Weill, M. Subramani & M. Broadbent, Building IT Infrastructure for Strategic Agility, MIT Sloan Management Review, Vol. 44, No.1, Fall 2002.
Information (15)
28% 45%
27% 47%
27% 47%
26% 48%
27% 47%
27% 47%
25% 46%
25% 47%
24% 48%
27% 42%
25% 48%
25% 46%
13% 54%
1 MIT
CISR 2007 survey of 1508 firms with Dr. Howard Rubin (Weill and Woerner). $IT=operating cost + depreciation. Firm-wide costs include all outsourcing and phone. Outliers greater than 4.7 standard deviations from the median were removed. 2 MIT CISR/SeeIT 2006 survey of 625 firms. (NSF Grant Number IIS0085725). 3 MIT CISR/SeeIT survey of 140 enterprises for 2001.
4 Banking,
Financial Services, & Insurance. High Tech, Aerospace, Construction, Electronics, Chemicals, Energy, Mining, and Agriculture 6 Retail, Travel & Food, Consumer Services, Health Care, Pharmaceuticals, & Media 7 Telecom, Utilities, Transportation, and Logistics 8 IT & Software, IT Services, and Professional Services.
5 Manufacturing,
Further reading: Generating Premium Returns on Your IT Investments, P. Weill & S. Aral, MIT Sloan Management Review, Vol. 47 No. 2, Winter 2006.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Informatio n (15)
Infrastructure (40)
27% 46%
26% 47%
28% 44%
28% 45%
27% 47%
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
1 MIT CISR 2007 survey of 1508 firms with Dr. Howard Rubin (Weill and Woerner). $IT=operating cost + depreciation. Firm-wide costs include all outsourcing and phone. Outliers greater than 4.7 standard deviations from the median have been removed. 2 Suggestive result only, due to small sample sizes.
10
Informati on (15)
Strategic (5)
25% 49%
27% 49%
26% 48%
26% 48%
27% 47%
1 MIT
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
CISR 2007 survey of 1508 firms with Dr. Howard Rubin (Weill and Woerner). $IT=operating cost + depreciation. Firm-wide costs include all outsourcing and phone. Outliers greater than 4.7 standard deviations from the median have been removed. 2 Suggestive result only, due to small sample sizes.
11
Strategic (5)
Infrastructure (40)
25% 46%
27% 44%
24% 48%
24% 51%
1 All
337 US stock exchange listed firms in the sample of 640 Focus: top 50% on ROIC and bottom 25% on percent of sales from modified product. 3 Balanced: middle 50% on percent of sales from modified products and top 50% on ROIC.
2 Cost
3 Balanced:
middle 50% on percent of sales from modified products and top 50% on ROIC. 4 Agile: top 50% on revenue growth and top 25% on percent sales from modified products. Source: Analysis by MIT CISR (P. Weill and A. Johnson) using IT Investment (2003-5 average) and firm performance (2003-4 average). IT Data: Collected from 640 firms using MIT CISR framework. Performance data from Compustat. 12 NSF Grant Number IIS-0085725
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Sample Value Measures Revenue growth BUSINESS BUSINESS UNIT UNIT FINANCIAL FINANCIAL Return on assets PERFORMANCE PERFORMANCE Revenue per employee
BUSINESS BUSINESS UNIT UNIT OPERATIONAL OPERATIONAL PERFORMANCE PERFORMANCE
B C
Responsibilities
Business Management
Time to bring new product to mkt. Sales from new products Product or service quality
Dilution of Impact
Dilution of Impact
Dilution of Impact
IT Management
Information Technology $
BV = BUSINESS VALUE
Time
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Source: P. Weill & M. Broadbent, Leveraging the New Infrastructure: How market leaders capitalize on IT, Harvard Business School Press, June 1998.
13
13%
/
13%
INFORMATIONAL STRATEGIC
Cut costs Increase throughput
Lower cost 2540% return* Lower risk*
27%
TRANSACTIONAL INFRASTRUCTURE
Higher market valuation Less then more sales from innovation Smaller short run margins and lower ROA
47%
Business integration Business flexibility Reduced marginal cost of BUs IT Reduced IT costs Standardization
Source: MIT CISR study by P. Weill & S. Aral using 19992002 data for 147 firms and Leveraging the New Infrastructure: How market leaders capitalize on IT, P. Weill & M. Broadbent, Harvard Business School Press, June 1998. All relationships are statistically significant. (*= 19941998 data). Percentages are 2007 total $IT investments from 1113 firms.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
14
Transactional Infrastructure
1 3
Next years Net Margin 2 Next years sales from New and Modified Products/Total Sales. Market to Book value in same year as investment. 4 Ave. = Average return for all firms, High (Low) Savvy= additional positive (negative) return for firms in the top (bottom) 5% of IT Savvy. 5 +(-) = "High Impact" 50% or less of the highest positive (negative) incremental impact for that variable. ++(--) = "Very High Impact" Greater than 50% of the highest positive (negative) incremental impact for that variable. All impacts are statistically significant controlling for firm and industry effects from 147 firms. Adapted from: Generating Premium Returns on Your IT Investments, P. Weill & S. Aral, MIT Sloan Management Review, Vol. 47 No. 2, Winter 2006. 2009 MIT Sloan CISR - Weill
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
15
IT Savvy $IT
# of firms
-40% less value
Value
% of firms
+40%more value
IT Savvy
Higher user satisfaction (e.g., IT Portfolio Health) More management experience with IT (e.g., reengineering) And thus above industry average IT Savvy*
*IT Savvy = enterprises ability to gain above industry average returns from IT by better management.
Sources: P. Weill & M. Broadbent, Leveraging the New Infrastructure: How market leaders capitalize on IT, Harvard Business School Press, June 1998. P. Weill & S. Aral, Generating Premium Returns on Your IT Investments, MIT Sloan Management 16 Review, Vol. 47, No. 2, Winter 2006.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
Firms with above average IT Savvy and IT spending also had 21% higher margins - average margin 6.1%
Margin percentage points above/below the industry-adjusted Net Margin. Industryadjusted Net Margin 2005 = 2005 Income Before Extraordinary Items / 2005 Net Sales minus Compustat Industry Means for Net Margin 2005 (3-digit NAICS). 2 IT Savvy is a score from -40 to +40, calculated from 24 questions assessing five important Source: 2005 MIT SeeIT/CISR survey of 329 characteristics. The five characteristics are Top Management and IT, IT and Business firms matched with publicly available firm Planning, Organizational Politics & Political Turbulence, User Satisfaction with IT, and IT performance data. Analysis: Peter Weill and Practices in Your Business. Split into high and low at median. 3 $IT as % of total company 2004 expenses includes operating expenses plus Stephanie L. Woerner. depreciated capital. Split into high and low at the median. 17 Center for Information Systems Research (CISR) Center for Information Systems Research (CISR) NSF grant number IIS-0085725.
2009 MIT Sloan CISR - Weill
1 Net
+8
18
Integrating Information Technology with Business Planning In your firm there are/is: Executive management considerations of information and IT implications in business strategy discussions. Regular high level briefings on the implication of IT developments in your industry. Accountabilities for achieving strategies which were clear and documented. Articulation of the respective roles and responsibilities of business and IT management in achieving effective and efficient systems and delivering business benefits. Managers are named and held accountable.
2009 MIT Sloan CISR - Weill
+8
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
19
+8
Your firm: Exhibits a strong sense of community, a feeling of shared interests and purpose and cooperation amongst managers. This is reinforced with reward systems and incentives that are based on a good balance of firm-wide and local measures. Captures relevant data in one business area and willingly shares it across the firm. Cross functional and business opportunities are actively sought to innovate, improve service, and reduce costs. Encourages cooperation via cross functional teams, secondments and movement of personnel.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
20
A feeling of empowerment for all people in the firm resulting from immediate access to data and systems that help with their job. Confidence in the reliability of systems and the completeness of information. A sense of relevance and accuracy of the information in the systems. Excellent support provided to those using the systems. Help desks are very effective and assistance from technical personnel is excellent. Excellent user understanding resulting from easy to use systems and good training. The attitude and responsiveness of those who provide support for systems is enthusiastic and professional.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
21
+8
Redesigns, simplifies or reengineers business processes before any money is spent on information systems. Maximises the reuse of business process and information systems components. Ensures that every new IT project that is not infrastructure has a business person as champion with clearly identified deliverables and responsibilities of the business and IT people. Ensures that infrastructure investments are treated separately from investments in applications to take account of their shared nature and long life. Encourages innovative use of IT in the business units even if firmwide standards are not always followed. Integration can be achieved later if successful.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
22
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
23
Leliveld)
Source: Best Practices in IT Portfolio Management, M. Jeffery & I. Leliveld, MIT Sloan Management Review, Spring 2004. Study with CIO interviews of 130 Fortune 1000 firms in 2003 by Diamond Management & Technology Consultants & Kellogg School of Management.
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
24
25
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
26
2006 2006
2005 2005
2004 2004
Infrastructure
$IT $IT as as a a percent percent of of Expenses Expenses (average (average = = 12.8) 12.8)
13.1 13.1
13.8 13.8
11.5 11.5
12.9 12.9
10.4 10.4
15%
9%
16%
17% 17%
10% 11%
22%
12%
20%
14% 62%
17% 50% 21 21
29% 44% 18 18
18% 49% 21 21
14% 54% 15 15
24 24
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
27
Center Center for for Information Information Systems Systems Research Research (CISR) (CISR)
2009 MIT Sloan CISR - Weill
IT Savvy has an industry average of zero and ranges from + 40% to 40% on a bell shaped curve. 28